Court File and Parties

COURT FILE NO.: CV-20-00000303-0000 DATE: 2023-09-27 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Nalkan Inc. and: Intact Insurance Company

BEFORE: Justice Patrick Hurley

COUNSEL: Jennifer Ng, for the Plaintiff Ashlee L. Barber, for the Defendant

HEARD: July 28, 2023

Endorsement

[1] On April 4, 2018, an apartment building owned by the plaintiff was damaged in a severe storm. The defendant was the plaintiff’s insurer.

[2] The plaintiff’s broker reported the claim to the defendant on the same date. The most serious damage was to the roof.

[3] At the direction of the fire department, the building was evacuated. With the assistance of the Red Cross, the tenants obtained temporary shelter, returning to the building within a few days.

[4] There were 30 apartments in the building, all occupied by lower-income renters, many of whom were in receipt of benefits through the Ontario Disability Support Program.

[5] The roof had to be replaced. An investigation by a professional engineering firm revealed water damage to some units and also the presence of asbestos in the building.

[6] The defendant hired a contractor to repair the units with water damage and carry out the asbestos remediation. However, the contractor would only proceed if the building was vacant.

[7] The plaintiff found another reputable contractor who agreed to do this work with the tenants present. The defendant refused to pay for this contractor and advised the plaintiff that it had to secure the eviction of all tenants before its contractor started the work.

[8] As a result, the plaintiff filed an application with the Ontario Landlord and Tenant Board (the “LTB”) to evict the tenants. Although many tenants left voluntarily, a group of them retained the Kingston Community Legal Clinic to oppose the plaintiff’s application. These tenants also filed an application for compensation.

[9] The proceedings before the LTB were contentious and prolonged. They were not completed before the LTB ceased hearing such applications due to onset of the COVID-19 pandemic in March 2020.

[10] The tenants who remained in the building refused to leave. The defendant maintained its position that the repairs and asbestos remediation would not be done until the building was completely vacant.

[11] The defendant closed the file and paid out what it considered to be the actual cash value of the repairs and its share of the asbestos remediation cost in September 2020.

[12] The plaintiff eventually negotiated a settlement with the residual tenants by the end of 2020, paying them over $100,000 to leave.

[13] The plaintiff ended up selling the building on an “as is” basis for $3,350,000 in 2021. According to an appraiser, the building would have had a market value of $4,600,000 if it had been restored to the condition that it was in before the storm (i.e., with all the damage repaired and fully occupied by tenants paying market rent).

[14] The plaintiff alleges that the defendant did not comply with its obligations under the policy including the implied duty to act in good faith and, as a result, the plaintiff suffered loss and damage of over $2,000,000.

[15] The action is still at the pleadings stage. The parties have not exchanged affidavits of documents nor conducted examinations for discovery.

[16] This is a motion by the defendant for summary judgment dismissing the action. It asserts that there is no genuine issue for trial. The plaintiff says there is. The record before me consists of two competing affidavits, one from Kerri-Lynne Amey, the adjuster responsible for the plaintiff’s claim and the other from Gahan Mahendran, the principal of the plaintiff. The parties forwent cross-examinations.

[17] The motion is dismissed. As I will explain in these reasons, I cannot make the necessary findings of fact on the record before me. A fair and just determination on the merits cannot be made, not only due to the conflict in the evidence but also because a more fulsome adjudicative process is required which would include the documentary discovery mandated by the Rules of Civil Procedure, examinations for discovery and evidence from more than the two witnesses who swore affidavits for this motion.

The positions of the parties

[18] There is a stark division in how the parties view the defendant’s conduct. Succinct summaries of their respective opinions are found in the concluding paragraphs of the two affidavits.

[19] Ms. Amey deposed:

Intact has handled this claim fairly and in good faith. Intact paid the amounts owing to the insured under the Policy and the fact that the tenants refused to vacate the premises is outside of Intact’s control. I have reviewed Intact’s log notes and see no evidence of bad faith in handling this claim.

[20] Mr. Mahendran responded:

Nalkan was a loyal, long-term insured with Intact under its Policy for many years; Nalkan paid its premiums (assessed and increased yearly by Intact) for what it understood to be comprehensive coverage for the Insured Buildings and rental business in Kingston, Ontario, promptly and without question; it had a clean property claims history up until the unfortunate windstorm in April of 2018 – which, by all accounts was severe; and it responded as diligently and quickly as reasonably possible to all of Intact’s requests, demands and directions.

In return, and when they were called on to respond under said Policy, Intact nickel and dimed, shopped around for the best deal it could get for itself, issued payouts unilaterally and contrary to the terms of the Policy, itself, and then dropped Nalkan entirely, when it decided the loss was too difficult to manage as a result of, among other things, the extenuating and extraordinary circumstances caused by the COVID-19 pandemic and the LTB.

[21] The defendant submits that summary judgment is appropriate and identified the following four issues, which it says are determinative of the plaintiff’s claim and can be decided on the record before me:

a. Is the plaintiff entitled to claim damages for depreciation of the building?

b. Does the exclusion clause apply to the business interruption loss?

c. Is the plaintiff entitled to recover payment of its costs in relation to the landlord-tenant board matter?

d. Was there any bad faith on the part of the insurer?

[22] The plaintiff maintains there are genuine issues for trial as to whether the defendant breached the express terms of the policy and the implied duty of good faith in its assessment, handling and settlement of the insurance claim.

The law of summary judgment

[23] The legal criteria are set out in Hryniak v. Mauldin, 2014 SCC 7, at para. 49:

There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.

[24] The onus of proof is on the moving party. It is only after the moving party has discharged its evidentiary burden of proving there is no genuine issue requiring a trial for its resolution does the burden shift to the responding party to prove that its claim has a real chance of success: Dia v. Calypso Theme Waterpark, 2021 ONCA 273, at paras. 24-25.

[25] Although decided before Hryniak, the Court of Appeal’s decision in Irving Ungerman Ltd. v. Galanis (1991), 1991 (ON CA), 4 O.R. (3d) 545 (C.A.), remains a leading case on what constitutes a genuine issue for trial. Morden A.C.J.O. described the test as follows at p. 10:

It is safe to say that "genuine" means not spurious and, more specifically, that the words "for trial" assist in showing the meaning of the term. If the evidence on a motion for summary judgment satisfies the court that there is no issue of fact which requires a trial for its resolution, the requirements of the rule have been met. It must be clear that a trial is unnecessary. The burden is on the moving party to satisfy the court that the requirements of the rule have been met. Further, it is important to keep in mind that the court's function is not to resolve an issue of fact but to determine whether a genuine issue of fact exists.

[26] I decide whether a genuine issue exists by reviewing the factual record before me. If I determine that there is a genuine issue, I need to consider the fact-finding powers granted under subrules 20.04(2.1) and (2.2) of the Rules of Civil Procedure and whether the exercise of these powers would lead to a fair and just result and serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole: Hryniak, at paras. 45-46 and 63.

[27] In this type of motion, “[t]he focus must be on whether the summary judgment process enables a fair determination on the merits in light of the record presented by the parties” (emphasis in original): Moffitt v. TD Canada Trust, 2023 ONCA 349, at para. 50.

[28] Paraphrasing Brown J.A. in Moffitt, I should ask myself the following question: Is there something about the nature of the findings of fact and the application of the law to the facts needed to decide the “live issues” in the action that would lead me to lack confidence that the summary judgment process would enable a fair and just determination of the action?

Is summary judgment appropriate in this case?

[29] Although the defendant identified four issues, I need only consider two of them to decide this motion: if I find there are genuine issues for trial with respect to, first, the breach of the duty of good faith and, second, the exclusion clause relied upon by the defendant, the motion for summary judgment cannot succeed. The facts and legal issues are sufficiently intertwined that partial summary judgment would not be appropriate: Truscott v. Co-Operators General Insurance Company, 2023 ONCA 267, at paras. 54-55.

a. The duty of good faith

[30] In Usanovic v. Penncorp Life Insurance Co., 2017 ONCA 395, Strathy C.J.O. reviewed the jurisprudence at paras. 25-30. The following is a summary of the applicable principles:

i. The parties to an insurance contract owe each other a duty of utmost good faith. This duty requires an insurer to deal with claims by the insured in good faith.

ii. The insurer must give as much consideration to the welfare of the insured as to its own interests.

iii. The insurer must act both promptly and fairly when investigating, assessing and attempting to resolve claims made by the insured. This applies during each step of the claims process.

iv. The insurer is obliged to pay a claim in a timely manner when there is no reasonable basis to contest coverage or to withhold payment.

v. The insurer is required to assess the merits of the claim in a balanced and reasonable manner and the decision to deny payment should be based on a reasonable interpretation of its obligations under the policy.

vi. The insurer does not have to be necessarily correct in disputing its obligation to pay a claim and the mere denial of a claim that later succeeds is not an act of bad faith.

vii. The scope of the duty of good faith has not been precisely delineated or definitively settled. Whether there was a breach will depend on the particular circumstances of each case.

[31] I begin my analysis of this issue with some observations about the evidentiary record.

[32] Ms. Amey’s affidavit consists of 30 paragraphs. To substantiate her conclusory statement that the defendant complied with its duty of good faith, she attached as an exhibit what she referred to as the “log notes”. They are 160 pages in length and include copies of emails composed by various people, text messages, summaries of conversations and other entries, presumably prepared by herself, about the plaintiff’s claim.

[33] The presentation of evidence in this manner is problematic. It is difficult to engage in the necessary fact-finding process in the absence of any accompanying explanation of the relevance or importance of the email, text, conversation, or entry. I can glean certain facts from documents but without context or explication, I do not know, with confidence, that I am drawing the right inferences or conclusions.

[34] There are a substantial number of redactions in the log notes, all of which Ms. Amey says are about reserves. The plaintiff has identified emails in its possession which are material to the issue of good faith which, for unexplained reasons, are not in the log notes. With redactions and missing documents in the log notes, am I getting the whole picture of what transpired in this case?

[35] The defendant chose not to reply to the responding affidavit of Mr. Mahendran notwithstanding the endorsement of Muszynski J. at a case conference on April 19, 2023 permitting it to do so. His affidavit stands unchallenged by either cross-examination or reply material.

[36] Despite these challenges in parsing the record, I can make findings about the central question in a motion of this nature: Is there a genuine issue which requires a trial for its resolution? I have concluded there is evidence which supports the plaintiff’s claim that the defendant breached its duty of good faith.

[37] The most serious controversy was the defendant’s proviso that the building be vacated before any remedial work was done to the interior. It persisted with this demand when it knew that the plaintiff was experiencing significant difficulties in obtaining the necessary order from the LTB. The defendant’s unwavering position led to the plaintiff embarking on, and continuing, a long, expensive, and ultimately unsuccessful legal odyssey.

[38] Arguably, the defendant’s apprehension about potential legal claims by the tenants if they were harmed in some way during the asbestos remediation was a valid one; however, the plaintiff not only secured a reputable contractor to do the work but also supplied proof that this contractor had the necessary insurance coverage to respond to any such legal claims. The defendant’s justification for rejecting this contractor was not given, as it could have been, in a reply affidavit.

[39] Both parties, it appears, thought a mass eviction could be obtained quickly and inexpensively. I do not know why they reached this conclusion; it seems that the plaintiff was relying on past experience with individual evictions and advice it received from a paralegal. The defendant asserts that the legal responsibility for what happened at the LTB lies solely with the paralegal. I am not so sure that is the case.

[40] While s. 50(1)(c) of the Residential Tenancies Act, 2006, S.O. 2006, c. 17, permits the termination of a tenancy for repairs or renovations, it refers to a “rental unit”. The application to evict all the tenants was never heard on its merits, but it is questionable whether a mass eviction would have been ordered when there was a contractor prepared to do the work without all the rental units be vacated. I do not know if the defendant considered this potential outcome when it made payment for the necessary repairs and asbestos remediation conditional on the plaintiff emptying the building of tenants.[^1]

[41] Even if a mass eviction could have been accomplished in a timely manner, why did the defendant believe this would in any way serve the interests of the plaintiff? Did the defendant consider the plaintiff’s interests at all in this regard? Did it make this assessment in a balanced and reasonable manner? Why did it not budge from its position that the required repair work and remediation would only be paid for if and when the building was vacant? These are key questions that I cannot answer on the record before me.

[42] On its face, it seems extraordinary that, as a precondition of payment, the plaintiff had to get rid of all its tenants and suffer the ensuing financial consequences when the work could have been completed by another contractor who did not require a vacant building.

[43] I cannot determine, from the log notes alone, if the defendant based its decision on the monetary difference between the two quotes or if it had some other reason for insisting on its contractor. It is also unclear to me if the defendant was willing to pay for any of the costs if the plaintiff’s proposed contractor did the work. It is one thing for an insurer to decline to pay a portion of a contractor’s bill because they consider it excessive and quite another to refuse to pay for necessary repairs unless its chosen contractor does the work.

[44] The defendant submits, correctly, that the mere denial of a claim that ultimately succeeds is not, standing alone, a breach of the duty of good faith. This is a different situation: it cannot reasonably be disputed that the plaintiff’s claim for the repairs and asbestos remediation was a valid one. It is the defendant’s insistence that the plaintiff evict all its tenants before the defendant would pay for such work that calls into question whether it breached its duty of good faith to the plaintiff.

[45] The plaintiff also asserts that other acts of the defendant breached the duty of good faith: it failed to pay the full amount of the rental loss when it knew that over half the tenants had left and would not be returning; it declined to renew the policy at a time when the plaintiff was particularly vulnerable, forcing it to secure, first, a short-term extension of coverage from the defendant at a higher cost and then obtain a policy from another insurer for a much greater premium; it paid out only the actual cash value of the repairs when the plaintiff had always evinced an intention to restore the building to its pre-storm condition; and, it did nothing to assist the plaintiff when it became apparent that the plaintiff would not be able to evict all the tenants.

[46] A court may decide that none of these acts, either individually or cumulatively, were breaches of the duty of good faith. Further, the defendant may be able to justify what it did (or did not do). But I find that a fair and just determination can only be achieved on a much more fulsome record than I have. There needs to be proper documentary discovery and examinations for discovery. It may be that, after this process is completed, a judge could decide this issue on a paper record but more likely than not, it will take a trial.

b. The exclusion clauses

[47] The defendant relies on the following terms to exclude any liability for the legal costs and other expenses attributable to the plaintiff’s efforts to evict the tenants:

Item 50 - Business Interruption

Indemnity Agreement

This form insures against loss directly resulting from loss of “Gross Rentals” caused by direct physical loss or direct physical damage by the perils insured against two building(s) at the premises specified in the Declaration Page(s), occurring during the term of this Policy.

Special Exclusions

The Insurer shall not be liable for:

a) Any increase of loss caused by delays or loss of time due to the presence of strikers of other persons or to labour disturbances on or about the “premises” interfering with the rebuilding, repairing, or replacing the property damaged or destroyed or the resumption or continuation of business or free access to or control of the “premises” or due to the action of sympathetic strikers elsewhere;

Item 51 – Extra Expense

This Item ensures the necessary extra expense incurred by the insured in order to continue as nearly as practicable the normal conduct of the Insured’s business following direct physical loss or direct physical damage by the perils insured against the “building(s)” or “contents of every description” thereof, commencing with the date of the loss and not limited by the date of expiration of this policy, as shall be required with the exercise of due diligence and dispatch to repair, rebuild or replace such part of the described “building(s)” or “contents of every description” thereof as may be destroyed or damaged. The insurer shall not be liable for more than the Limit of Insurance specified in the Summary of Coverages or Extra Expenses.

Additional Exclusions

This Item does not insure:

a) any increase in the amount of loss due to interference at the described “premises” by strikers or other persons, with rebuilding, repairing or replacing the property, with the resumption or continuation of business.

[48] In MDS Inc. v. Factory Mutual Insurance Company, 2021 ONCA 594, Thorburn J.A. summarized the legal principles which apply to the interpretation of standard form contracts for insurance at paras. 40-45:

Where the language of the disputed clause is unambiguous, effect should be given to the clear language of the policy read in the context of the policy as a whole. It is unnecessary to consider extrinsic evidence in order to interpret its terms. However, like all contracts, the policy is examined in light of the surrounding circumstances.

As above, the surrounding circumstances include “anything which would have affected the way in which the language of the document would have been understood by a reasonable man” at the time the parties made their agreement. The identity and sophistication of the parties, the jurisdictions in which the contract is in effect, and the commercial context of the contract are all elements of the “surrounding circumstances”.

The words of the contract are given their ordinary meaning, not the meaning they might be given by persons versed in insurance law.

However, where a policy provision is ambiguous, the rules of contract construction may be employed to resolve the ambiguity. A contractual provision is ambiguous if it is reasonably susceptible of more than one meaning. The goal is to reach a sensible commercial result that reflects the intentions of the parties at the time the agreement was entered into.

Extrinsic or parol evidence may be admitted to resolve ambiguity.

If the general rules of construction fail to resolve the ambiguity, courts will construe the contract contra proferentem, and interpret coverage provisions broadly and exclusion clauses narrowly. [Citations omitted].

[49] According to the defendant, the policy terms are unambiguous because the tenants were “other persons” who interfered with the repairs and the defendant is therefore not liable for any expenses or loss caused by their conduct. I disagree. The specific references to “strikers” and “labour disruption” suggests that the exclusion clause is directed at labour disputes and similar situations where a third party interferes with the orderly repair of the insured premises. That is not what happened here.

[51] Counsel did not provide me with any decisions which interpreted these or similarly worded clauses. I find that the language is ambiguous and extrinsic evidence may be necessary to interpret these terms. The tenants were exercising their legal rights to challenge the termination of their tenancies. This only became necessary because the defendant required the plaintiff to evict them, failing which it would not pay for the repairs and asbestos remediation. Do the exclusion clauses apply where the tenants’ purported “interference” was triggered by the defendant’s actions? Do they exempt the insurer from compensating the insured for the financial consequences that flow from the eviction of tenants and the attendant legal proceedings? Is that a “sensible commercial result that reflects the intentions of the parties”? Again, these are important questions that cannot be satisfactorily answered on the available record.

Conclusion

[53] The genuine issues in this case cannot be decided in a just and fair manner by resorting to the additional powers under rule 20.04 of the Rules of Civil Procedure. The litigation should proceed in the normal manner. Given the time that has already elapsed since the date of the loss, the parties should agree on a discovery plan as soon as reasonably possible. If the parties are unable to reach an agreement, I am prepared to give directions under rule 20.05 of the Rules of Civil Procedure to ensure that the action proceeds in a timely, affordable and proportionate manner.

[54] The parties shall make meaningful efforts to resolve the costs of this motion. In the event that no agreement is reached within 10 days of the release of this decision, the costs outlines should be uploaded to Caselines. If I require anything more than the costs outlines, I will advise the parties.

Date: 2023-09-27 ____________________________ JUSTICE P. HURLEY

COURT FILE NO.: CV-00000303-0000

DATE: 2023-09-26

ONTARIO

SUPERIOR COURT OF JUSTICE

RE: NALKAN INC.

AND:

INTACT INSURANCE COMPANY

BEFORE: Justice Hurley

COUNSEL: Jennifer Ng, for the Plaintiff

Ashlee L. Barber, for the Defendant

ENDORSEMENT

JUSTICE HURLEY

Released: 2023-09-27

[^1]: It may be that the plaintiff could have successfully evicted all the tenants but that is far from clear. As the decision in 2759953 Ontario Inc. v. Reeves, 2022 (ON LTB), illustrates, this is not a simple (or inexpensive) task for a landlord. In that case, the landlord submitted extensive evidence, including expert assessments, establishing that all the rental units had to be vacant in order for the proposed renovations to be done.